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Five Emerging Trends Will Reshape Global Banking in Next Decade: IBM Study


Customers Take Charge and New Competitors Take Profitable Niches as Global Industry Begins a Transformation That Will Be Marked by Innovation

ARMONK, NY -- Nov 15, 2005 -- IBM today released a landmark study revealing the key trends and innovations that will define the global banking industry in 2015.

The study “Banking 2015: Defining the Future of Banking” (available at forecasts trends in banking to produce a unique insight into the competitive forces that will face bankers in the next 10 years. The study also spotlights the emerging business and technology innovations and societal trends that will propel and shape the industry’s transformation.

The survey by IBM’s strategic research unit, The Institute for Business Value, comes at a time of rapid change fueled by new information technology, global regulations and emerging markets in Asia, Eastern Europe and South America. Worldwide, total financial services revenue is forecast to experience compound annual growth of 7.1 percent between 2000 and 2015, from US $2 billion to US $5.6 billion. In the Asia-Pacific region, IBM predicts a growth rate of about 7.6 percent.

IBM found five key trends will determine market success in 2015:

* Customers take control. Customers will be smart, informed and savvy users of financial services. They will only be interested in service providers that can meet their very specific individual needs.
* Specialized niche competitors. Market consolidation will continue, making the mega banks even bigger. But they will face swarms of nimble competitors including community banks, industry specialists and non-bank banks that specialize in providing specific services. Partner-competitor relationships will arise.
* A new workforce. The need for productivity and efficiency will create new sources of labor and work practices. But there will also be intense competition to attract and retain talent.
* Regulated transparency. The need to comply with globally enforced standards of transparency and accountability will force the adoption by banks of integrated, enterprise-wide systems and processes.
* Sharply focused technology. The enabler of all this change will be technology that supports rapid, accurate decision making and greater operational flexibility and efficiency. The successful specialists will be those who can track and analyze specific customer needs and speedily meet them with profitable, reliable products.

Rusty Wiley, lead partner for IBM’s Global Banking Practice, says the study shows what banks must do now in order to stay competitive over the next ten years. "By 2015, we will live in an intensely customer-centric market that is dominated by global mega banks and densely populated by specialist financial services providers. Fierce competition, global regulation and technology will reshape bank and non-bank structures.

“Technology will also drive fundamental changes in workforce disposition, which will have substantial follow-on effects for productivity, efficiency and profitability,” Wiley says. “These trends are already evident but, as they become entrenched, there will be profound changes to the competitive drivers of global banking.”

Four strategic imperatives
According to IBM, these market changes pose big challenges for conventional banks. Four key strategic issues arise from these profound changes.

* Changing business models. These must be focused on the value proposition offered to customers, who will want tools, information and options.
* Targeted growth. Banks must identify target business areas and play to them. It will be essential to maximize operational efficiency -- and counter nimble, new market entrants -- by partnering with specialist providers.
* New workforce options. Financial services players will need to integrate into their operational structures low-cost, highly flexible labor options such as offshoring. A key management task will be attracting -- and retaining -- talent.
* Nimble infrastructure. IT investments must be focused on improving responsiveness, resiliency and enterprise-wide collaboration.

Mortgages among the next big products
But how can banks choose which products and market innovations will be best for their business? The IBM study identifies a number of value-added options:

* Mortgages. These represent a big growth opportunity with automation stripping out costs and product innovation stoking numerous value chain improvements. IBM suggests that average mortgage loan origination costs will fall from US $1,425 in 2003 to US $400 by 2015.
* RFID (Radio Frequency Identification). This will become the market-leading payments technology. Banks will need a portfolio of payment innovations to remain competitive, but RFID cards are forecast to show the strong growth to 2015, with compound annual growth from 2005 of 30 percent.
* Service packaging. Innovation in product and service integration and bundling will spawn future growth by de-commoditizing current offerings. For banks, this will produce increased cross-sell potential, higher customer borrowings, reduced account maintenance costs and reduced risk (because of more depth of information on each customer).
* Customer integration. All-in-one, or integrated, accounts unite all cash, savings, and short- and long-term borrowing. Integrated accounts will bundle savings, mortgage, and other borrowings.

According to Sunny Banerjea, global banking leader for the Institute for Business Value, each bank must decide on a strategy that fits its customers’ needs. "Banks will need special strategies to cater to a far more discerning -- and controlling -- customer. Innovative approaches to business design, customer service, workforce management and IT will be critical to banks’ future success.

“Banking customers will demand more advocacy, personal security and control in their banking relationships,” Banerjea says. “Banks will source products and services from many specialized and best-in-class service providers, including independents and other banks providing white-label products and services. They will partner actively with providers to improve their own capabilities without locking up their own capital and improving dramatically their ability to address changing demand cycles.”

“Innovation in products, processes, relationships and business models will be the primary path to sustainable growth.”

About the IBM Institute for Business Value
The IBM Institute for Business Value develops fact-based strategic insights for senior business executives around critical industry-specific and cross-industry issues. The Institute, which is part of IBM Business Consulting Services, draws on IBM consultants around the world to identify issues of global interest and to develop practical recommendations with local relevance. With consultants and professional staff in more than 160 countries, IBM Business Consulting Services is the world’s largest consulting services organization. This paper is part of an ongoing commitment by IBM Business Consulting Services to provide forward-looking industry and business points of view, and to help companies and industries transform their futures. For more information, visit

About IBM
IBM is the world’s largest information technology company, with 80 years of leadership in helping businesses innovate. Drawing on resources from across IBM and key Business Partners, IBM offers a wide range of services, solutions and technologies that enable customers, large and small, to take full advantage of the new era of e-business. For more information about IBM, visit


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